Harbour Link Blog Archive

Government Folly and Ineptitude

Posted 2014-11-14 by Harbour Link in opinion

The 26 day port dislocation in March that resulted from the withdrawal of services by UTA Owners Operators and the membership of UNIFOR seems to have caused Government to act irrationally in their efforts to address the issues pertaining to the drayage sector.

The withdrawal of port services by members of UTA and UNIFOR was triggered to protest the worsening truck waiting and turn times being encountered by drivers at the Port to deliver or pick-up containers. What is not commonly known are the exhaustive efforts made by the drayage carriers through the BCTA (during the preceding 4 years) to address the waiting time issue that failed due to the dismissive behavior by both the terminal operators and PMV to not take these matters seriously?

So, it came as no surprise to the drayage sector when Canada’s Prime Gateway to the Asia Pacific became bottlenecked by the actions of owner operators and members of UNIFOR to park their trucks until an action plan was put in place to correct the excessive waiting and turn time issues.

The biggest thunderbolt was the decision by Government and PMV to speak only with representatives of UTA and UNIFOR about the waiting time issues, which predictably, quickly morphed into the inclusion by UTA and UNIFOR of many other issues, that resulted in Government negotiating a back to work agreement with UTA and UNIFOR (the 14 Point Plan) without once consulting with the BCTA or any drayage carrier as to the validity/merits of the expanded list of claims/demands by UTA and UNIFOR pertaining to non-port interface issues. Incredibly, Government chose to ignore the collective bargaining agreements (CBA’s) that existed and remained in good standing between the various drayage companies and the Unions representing the drivers / independent operators (owner operators) in their respective fleets. More astonishing was the decision by Government to take the role of the employer and intervener between the drayage carriers and their employees / contractors, regardless whether the demands of UTA and UNIFOR were valid. Not once did Government or PMV consult with the drayage industry to obtain insight into the merits of such claims, nor did they attempt to understand the ramifications of the appeasing actions subsequently taken by them.

The biggest setback was the decision by Government to arbitrarily double the fuel surcharge (FSC) to be paid by drayage carriers to owner operators which has resulted in Owner Operators now being paid:

  • Nearly 250% more for the cost of the fuel than the actual cost differential between the base cost and actual cost of fuel per litre.
  • Receiving a double payment; because the FSC continues to be calculated on the original cost of fuel of #1.05 per litre set by Vince Ready in 2005, whereas the base cost of fuel today should be 12% higher to include the increase made to the Vince Ready rates by Government on 3rd April 2014 i.e. it should now be $1.176 per litre. Today, owner operators are receiving both the 12% increase made to the Vince Ready rates and a fuel surcharge based on the unadjusted fuel cost of 2005.
  • Today, owner operators are being paid nearly 5 times more revenue in the form of a FSC than the differential between the base cost of fuel of $1.176 and the actual cost of fuel per litre.

Despite the efforts of industry to bring the aforementioned error to Government’s attention, amazingly, Government has chosen to ignore their mistake of doubling the fuel surcharge, nor to readjust the base cost of fuel to include the 12% increase made to the Vince Ready rates, which, for this company alone has added to the transportation cost of our customers in excess of $1 million per annum.

PMV and Government are presently in the process of enacting changes to the TLS system and adopting the Container Trucking Act, without first engaging in meaningful prior discussion with the BCTA and the drayage carrier industry about the merits and the impact such changes will have on achieving improvements to the port interface.

In the case of TLS, PMV has decreed that the industry has about 500 more trucks than they deem is required. Well, this is a huge surprise to us! As a professional drayage carrier with a leading edge reputation that performs more than 250 port container transactions daily, the biggest daily challenge we continue to encounter is the ability to muster sufficient TLS truck power and to obtain sufficient reservations to fulfill daily trade requirements, which is forcing us daily to turn away business.

Why PMV feel it is their job to control fleet size is characteristic of a bureaucracy acting as Big Brother using “We Know Best” dictatorial behavior. Shamefully, it took a work stoppage by drivers to get PMV to recognize the need to expand the opening of container gates to two full shifts daily. Add this factor to the substantial year-over-year growth in traffic volume being handled by this port, are clear indications that truck requirements are growing, not shrinking.

PMV’s plan to reduce overall fleet size ignores the reality that the drayage sector primary deploys owner operators and that owner operators work directly for drayage carriers, not the port’s customers. Owner operators with a TLS cannot obtain work unless they are contracted to provide services for a designated FSO drayage company.

The demand for trucks is governed by the business requirements of the respective drayage companies and the requirements of the marketplace, not by PMV nor owner operators. If there is an oversupply of trucks, the root cause results from there being too many drayage companies with insufficient business to support the size of the truck fleet under their control. This is what has caused the drayage business to be over supplied and owner operators (who are hybrid employees engaged as contractors and independent businessmen by drayage carriers) being unable to secure sufficient work to make a decent living.

An obvious question to ask is why drayage companies engage owner operators rather than deploy their own fleet of trucks and drivers? The answer is simple: owner operators are compensated by the job and are therefore incentivised to complete multiple assignments daily. Company drivers, paid hourly, have no incentive to accept and complete multiple daily assignments productively. Based on our own experience, we can unequivocally state that the performance and productivity of owner operators is substantially better and yields an average of 1.5 additional container moves per truck daily when compared to company operated trucks. Paying drivers by the hour as advanced by Government in the 14 Point Plan will result in substantially higher drayage costs. This fact was proven in 2012 when we adopted a plan to add company trucks and drivers to our local fleet, the outcome of which proved to be substantially more expensive and operationally inferior compared to the owner operator model and resulted in weighty financial losses making it necessary to reduce significantly our investment in Company trucks.

An operational challenge in deploying owner operator trucks is that each owner operator owns a single truck which the owner maintains and operates as an independent businessman. As the sole driver of the truck, the owner is governed (the same as all drivers) by the maximum daily and weekly hours of operation permitted by the National Safety Code (NSC). Thus, while port gates are now open for 16 hours daily, an owner operator’s permitted hours of work is substantially less and prevents him/her from being able to service the port for the full duration the port is open. Hence, while container gates may be open, in order for a drayage company to utilize all available hours the port is open, necessitates the need for drayage carriers to recruit more trucks or to convince owner operators to recruit second drivers for their trucks, which is something Harbour Link is endeavoring to do.

To add to the truck supply dilemma is the policy adopted by the port’s terminal operators to limit truck transactions to a single container transaction per port visit, which is a condition imposed by the terminal operators to mitigate paying waiting time to trucks if at the port for more than 90 minutes per truck transit as stipulated by the Government’s 14 Point Plan. This post work stoppage policy has resulted in approx. 90% of port transits by trucks now being limited to performing single container transactions and is the underlying reason why port transit has improved to less than one hour per container.

The adoption of the above policy by the terminal operators has added huge operational cost and inefficiencies that require drayage carriers to now deploy more truck power to move the same volume of container traffic pre the work stoppage.

It is our view that fleet requirements for the Gateway should be governed solely by the forces of a free marketplace and drayage carriers should be left to determine the size of the truck fleet they require to service their customers.

So, what are the fundamental changes to be made by PMV to the TLS:

  1. Each drayage carrier that currently holds an FSO license to perform Local drayage services will be required to resubmit before mid-January 2015 an application to re-substantiate their credentials and requalify to be a full service operator (FSO). The reapplication includes fulfillment of pre-qualification standards and the need to substantiate customer support for the number of truck tags requested by the drayage carrier.
  2. The inclusion of a minimum annual contractual agreement charge of $45,000 is to be paid by each approved FSO. The fee will include the issuance of up to 20 truck tags
  3. For each additional truck tag required by the FSO in excess of the initial 20, an additional fee of $2,250 must be paid for each additional truck tag.
  4. Each FSO will be required to post a minimum performance bond of $300,000, plus an additional $150,000 performance bond for each increment of 10 truck tags
  5. Each FSO will be required to provide a damage deposit ranging between $10,000 and $15,000 depending on fleet size.

We will not attempt to address the framework surrounding the new TLS requirements. Suffice to say we fully support the action by PMV to replace the present TLS system with the issuance of truck tags to accredited FSO drayage carriers rather than continue the present practice of issuing TLS to individual owner operators. We also fully support the action taken by PMV to raise the standards of entry and the qualification requirements for a drayage company to be an FSO.

The key concerns and recommendations we would make to PMV include:

  1. WE believe the plan by PMV to permit smaller drayage carriers to combine their efforts into groups of 3 to help ease the financial burden of the annual contractual agreement charge of $45,000 is fundamentally wrong. We believe each drayage carrier should be required to stand on their own two feet. The underpinning problem plaguing the drayage sector is the presence of so many drayage companies, which has resulted in the sector being oversubscribed with carriers serving the marketplace.
  2. We are also opposed to the concept of the annual contractual agreement charge of $45,000 being inclusive of the issuance of up to 20 truck tags. We strongly believe the annual contractual agreement charge should be a separate fee and each truck tag required by an FSO should be a separate levy per truck. Given that the truck tag is a cost to be born solely by the drayage carrier, we strongly believe that drayage carriers will only purchase the quantity of tags they actually require to fulfill their sustainable business requirements.

It is very clear to us that the implementation of the new TLS system by PMV will result in substantial added costs of doing business at the Port of Vancouver. In our case, we envision the aggregate additional cost of TLS will be in the order of $25,000 per month. Yet unknown is the cost impact that will flow from the legislation presently before the House in Victoria, which, as previously noted, is being enacted by the BC Government without any prior input being sought from the BCTA or the drayage sector to assist Government to understand the impact the new Container Trucking Act will have on the competitiveness of the Vancouver Gateway and the essential dynamics needed to improve the seamless flow of Canadian trade and the stability of the drayage sector.

Inept behavior indeed!